Greek debt bailout could hit £26bn

Greece on the slide: Greece, Portugal and Spain could end up effectively bust

A meeting of the G7 group of leading economies yesterday concluded that the EU stands to foot the bill to stop the Greek debt crisis dragging the euro down even further.

The currency fell to its lowest level against the dollar in ten months on Friday amid fears that vulnerable economies such as Greece, Portugal and Spain could end up effectively bust. The pound rose sharply against the euro.

The euro was down again today against the dollar but strengthened against the pound, at €1.1385.

Global stock markets also tumbled because of fears that the debt crisis will derail economic recovery.

The European Central Bank and the International Monetary Fund previously said Athens would need £16bn to help stabilise the markets.

But experts with Credit Suisse have said the cost would come to €30bn (£26bn) by May. The broker warned that even if the immediate danger can be overcome, the coming years will be fraught with difficulty.

Portugal and Spain have also caused panic among investors, and economists fear the spotlight could soon turn to the UK, which has failed to tackle its huge budget deficit.

At the weekend, the European G7 countries told fellow members the US, Japan and Canada at a meeting in Iqaluit, Canada, that they would ensure Greece delivered on its pledge to drastically cut its budget deficit by 2012.

The EU Commission has privately made it clear that it will bail Greece out if necessary-Greece's debt has been rapidly increasing and stands at almost 13% of the national economy.

Despite a hands-off warning from G7 ministers, the IMF is ready to send a heavyweight workforce to help sort out Greece's budgetary crisis.

Observers said that had Greece been outside the eurozone, the IMF would have already become involved.

Wolfgang Schaeuble, the German finance minister, said Greece would have to make sacrifices. 'Greece has to realise that when you break the rules over a long period of time, you have to pay a high price,' he said.

Michael Woolfolk, senior currency analyst at Bank of New York Mellon, said: 'What I think is needed is an agreement on behalf of the EU to provide further support for Greece to further ensure that it doesn't default.'

European debt problems in a nutshell

Total debt problem: Net debt as percentage of GDPSource: European Commission 2009 estimate